§ 2.55 p.m.
§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, with the leave of the House I shall now make a Statement on Barlow Clowes.
Your Lordships will be aware of extensive recent publicity surrounding the affairs of Mr. Peter Clowes and the companies in the Barlow Clowes group. In view of the public concern on this matter it is right that I should inform the House of the situation and of the action that the Government are taking.
There are many companies involved here. Those most in the public eye have been Barlow Clowes Gilt Managers Limited, a UK investment management company, and Barlow Clowes International Limited, a similar company but registered in Gibraltar. The holding company of the group is James Ferguson Holdings plc. Investigators were appointed in November last year, under Section 106 of the Financial Services Act 1986, to examine the affairs of Barlow Clowes Gilt Managers Limited. The interim report of the investigators has been received and formed the basis for the winding up petition of that company. The Official Receiver has been appointed provisional liquidator, and special managers of its assets have been appointed at the instance of the Securities and Investments Board. My department is in close touch with the special managers, who have been at the company's premises over the weekend. Mr. Clowes has been co-operating during this period with the special managers. At present it cannot be said with any certainty what the return to creditors will be. Papers have been passed to the serious fraud office, and investigations are being carried out by the police.
On Friday of last week the Section 106 inspectors, Mr. David Ziman, a solicitor, and Mr. Walter Hoffman, an accountant, were appointed under Section 432 of the Companies Act 1985 to look into the affairs of James Ferguson Holdings plc. This will in turn enable the affairs of all that company's subsidiaries to be looked at.
The Gibraltar company, Barlow Clowes International Limited, is being wound up at the instance of the holding company under the supervision of the Gibraltar courts. The joint liquidators are two British firms, Cork Gully (who are the special managers of Barlow Clowes Gilt Managers Limited in UK) and Ernst and Whinney.
Public concern has been expressed about the role of my department in relation to these companies. I have decided that this should be examined objectively and independently, and I shall appoint an independent person of standing to investigate and report to me as soon as possible on the facts of my department's handling of the matter. Subject to there being no legal impediment, either as to content or as to timing, I propose to publish that report.
9 Meanwhile it will be of interest to the House to know of the earlier decisions taken in relation to these companies. In 1984 the department approached the Barlow Clowes partnership to establish whether they should be licensed under the Prevention of Fraud (Investments) Act 1958. Rumours about the partnership were subsequently reported by the National Association of Securities Dealers and Investment Managers. After pressure from the department the partnership applied for a licence and in October 1985, after prolonged negotiation and the receipt of assurances, a licence was granted. In October 1986 it was renewed. In October 1987, in the light of dissatisfaction by the department and with the monitoring of returns from Barlow Clowes, and of other information, it was decided to appoint investigators. The company's licence was renewed while this investigation was in progress.
The main priority at present must be to safeguard as far as possible the interests of investors. I cannot at present comment on the amounts which may be at stake or on the position of individual investors. I am sure, however, that the liquidators in London and Gibraltar will seek to resolve the situation as quickly as possible in the interests of investors. I shall make a further statement when I am in a position to do so.
My Lords, that concludes the Statement.
§ Lord Williams of Elvel
My Lords, the House will be grateful to the noble Lord, the Secretary of State, for making that Statement on this very serious situation. In particular, we on this side welcome the frankness with which the Secretary of State has announced an objective and independent inquiry into his own department. It must be an extremely difficult action for a Secretary of State to take, but he has grasped the nettle and we are grateful for this.
Who does the noble Lord have in mind as the independent inquirer, if that is the expression, because the identity of the gentleman or lady in question is a matter of serious concern to the Opposition? Will the inquirer have all possible access to papers and be able to take evidence on this matter under oath? Those seem to be the fundamental principles under which the Secretary of State might wish the inquiry to he conducted.
The affairs of Barlow Clowes International are now to a certain extent sub judice. We welcome the reference to the serious fraud office. We hope that the police will be successful in unravelling the extremely difficult series of transactions that obviously lie behind the position the noble Lord has described. For the moment we shall suspend judgment on the question of the role of the Department of Trade and Industry until we hear further from the noble Lord as he has promised.
Will he, however, let the House know, first, what responsibility lies with the parent company, James Ferguson Holdings plc, in respect of the obligations of its subsidiaries? As I understand it, the parent company asked for a liquidation of Barlow Clowes International. Is it possible for a parent company simply to ask for a liquidation and walk away from the results, or is there any residual liability? Secondly, are there any inherent criticisms of the accountants 10 Spicer and Pegler who were mentioned in the report of the Securities and Investments Board, and who in 1986 apparently failed to draw attention to the transfer and possible mingling of United Kingdom and Gibraltar funds through a Geneva account? Is the noble Lord satisfied that those criticisms are well founded?
Thirdly, have the Government in mind any arrangements for compensating those investors who have perhaps—we do not know—lost their money as a result of fradulent practice by Barlow Clowes? I return here to my first question as to the responsibility of the parent company to start organising something, perhaps with the co-operation of the Government. Under the Financial Services Act, as I understand its provisions, if this were to happen now there would be some compensation for those who lost their money.
We are dealing with approximately 11,000 private investors who invested approximately £140 million. Those sums were invested not necessarily directly but were placed by intermediaries who were relying on the licence granted under the Prevention of Fraud (Investments) Act by the Department of Trade and Industry. It is an important matter. We welcome the Government's stated intention to try to stamp out once and for all this kind of business. We regard this as another sleazy operation, licensed by the DTI, operating through various tax havens and perhaps even failing to distinguish between client and own funds. We look forward with great interest to further statements from the Government.
§ Lord Ezra
My Lords, I should like to join the noble Lord, Lord Williams, in thanking the noble Lord, Lord Young, for making this Statement, and in expressing appreciation for the prompt action of the DTI in setting up this inquiry to deal with the public comment so far made on the issue. I should like to address two questions to the noble Lord; one affects licensing procedures and the other compensation.
As to licensing, the noble Lord, Lord Young. made it clear that there was some delay in these securities dealers obtaining a licence in the first place. It was due to approaches from the DTI that finally they came into line but at the same time the National Association of Securities Dealers and Investment Managers was expressing some doubts about their operations. This ultimately led to an inquiry in October last year although a licence was at that time granted. Investors continued to invest. In fact, according to newspaper reports, they were investing right up to 27th May this year. The question that I should like to ask—I believe it is independent of the inquiry to be conducted—is whether in cases of this kind, where the DTI is perturbed about the operations of the dealers and where inquiries are ultimately being mounted, some warning should be given publicly that this is being done. While all this was occurring people were in a bona fide manner investing their savings right up to 27th May this year. That is a general point to the noble Lord.
My second point is compensation. I am not at all clear where those who are likely to lose as a result of this will stand in relation to the compensation fund 11 set up under the Financial Services Act. Perhaps the noble Lord can elucidate their position.
I should like to add a general comment. Having been involved fully in the debates on the Financial Services Act I am concerned that although the intention was to protect investors small investors are beginning to lose out. Not only are they being advised, as in this case, by apparently reputable organisations to invest in bodies to some degree suspect, but the charges being made to smaller investors are also much higher than they were previously. Can we not use this as a reason for having a look at the position of the small investor in the new financial circumstances in which we find ourselves?
§ Lord Young of Graffham
My Lords, I am grateful to the noble Lord, Lord Williams of Elvel. I hope very soon to be in a position to announce the name of the person who will head the inquiry. I wish to assure the House that when I announce the name it will be perfectly satisfied with the individual who is chosen. The terms of inquiry must first be agreed with the person who will head the inquiry. Under this procedure there will not be any power to examine under oath. Both I and my permanent secretary will instruct the officials of my department, who are so required under their terms of employment, to cooperate fully. This is an inquiry to determine the facts of what actually happened within the department and to determine whether or not the department is to blame in any way or whether procedures could be improved in the future.
To go back to the origins of the affair, there were lessons to be learnt. The Prevention of Fraud (Investments) Act 1958 was deficient in some ways and the Financial Services Act went out of its way to remedy those deficiencies. It is far too early to talk about compensation. We have first to ascertain what the losses are, if there are losses. I can assure the noble Lord, Lord Williams, that at present I am neither satisfied nor dissatisfied in that respect. What I want to do is to see what the inquiry turns up and to have a good, dispassionate look at the facts.
In one area I fear I must depart from the noble Lord, Lord Williams. I should like to think that whatever we do now will stamp out this business once and for all. However, I have a less sanguine view of human nature and I suspect that these things happen from time to time. We must ensure that it happens as infrequently as possible.
It is early at this stage to make these judgments. The Financial Services Act will show that this kind of incident should not happen in the future. It is serious and I should like to assure the House that I view with the greatest possible seriousness what may have happened to some individuals who attempted to invest life savings into this kind of enterprise. It is a matter to which I have no doubt we shall return.
§ Lord Williams of Elvel
My Lords, I have a small question on the actual words of the Statement, and I wonder whether the noble Lord can assist me. The text of the Statement as released through the 12 Government Whips' Office, in referring to the inquiry, states that it willreport to me"—that is, the Secretary of State—as soon as possible on the department's handling of the matter".However, the Secretary of State added the words,on the 'facts of my' department's handling of the matter".Is it the words of the noble Lord or the words of the Statement which are authoritative?
§ Lord Young of Graffham
My Lords, notwithstanding the advances of modern technology, words are occasionally left out. Indeed, it should be:The facts of the department's handling of the matterWe want to establish the facts and see what actually happened, so that judgments can be made.
§ Lord Stoddart of Swindon
My Lords, is the noble Lord aware that a cold chill of apprehension will have run down the spines of many small investors as a result of this particular affair? Many people, especially non-taxpayers, have invested their money in overseas or offshore funds because the Chancellor of the Exchequer has monopolised all savings upon which interest is paid without deduction of tax. Therefore, a huge number of people, non-taxpayers and others, have invested their money in offshore gilt funds. Indeed, there are many well-known names, but it would be invidious to mention them. However, on hearing about this particular affair many people will be most concerned that their money may not be safe after all.
I understand that the Financial Services Act does not give protection to people who invest in offshore funds; and, indeed, there are many millions of such people at present. Therefore, will the noble Lord take the opportunity to give to those people who have so invested their money some assurance that their savings are not in danger? Further, will he undertake that the Government will try to take some steps to ensure these people do become covered by the Financial Services Act?
§ Lord Young of Graffham
My Lords, much as I should like to do so, there is nothing I can say about offshore funds or about activities outside the jurisdiction of the courts, or of the Government. There has long been a saying that you cannot separate risk and reward, and that if people look for above-level rewards then they might be taking above-level risks. However, that is not a matter which we are here to discuss today. I shall look again at the Financial Services Act, but I must say in all conscience that it would be impossible for this country to supervise funds throughout the world. All we can do is to ensure that the funds over which we have supervision and control are run properly.
§ Lord Peston
My Lords, will the noble Lord make some comment on the speed of the matter? Speaking for myself, I am appalled by the slowness of the affair. I understand that in October 1987, despite expressions of dissatisfaction, and so on, investors nonetheless went on investing. I am certain that the 13 noble Lord would not justify all that in the words of the great "economist", W. C. Fields; namely,Never give a sucker an even break".This is an extremely serious matter of investor protection, and yet matters continued from October 1987 until the present day before virtually anything happened. I wish to know how vigorously and rapidly the current investigations will proceed; that is, in regard to the affairs of the company itself, in regard to the operations of the serious fraud office and the police, and also in regard to the noble Lord's own department. Can we be assured (without any of this being done superficially, but so that it is all done fundamentally) that it will happen rapidly and that we shall know something about serious action being taken within the foreseeable future?
§ Lord Young of Graffham
My Lords, one of the reasons why I came to your Lordships' House to suggest an independent inquiry was to satisfy the type of doubts that have just been expressed. It may seem that it has taken a long time but there are many interests which must he taken into account, not least of which are those of the existing investors in the funds and the steps which must be taken in that regard. We have to be sure beyond doubt that such matters are taken into account. I have little doubt that the inquiry will establish how well, or otherwise, my department has acted. Further, I am more than content for the facts to speak for themselves.
Lord Bruce of Donington
My Lords, in the Statement the noble Lord referred to the investigations that were decided upon in October 1987 in the light of dissatisfaction by his department with the monitoring returns from Barlow Clowes, and other information. Is it the case that in October 1986, when the permit was renewed—notwithstanding the long negotiations in 1985—the department had no information in its possession indicating that there was some doubt about the matter and that the monitoring returns submitted by Barlow Clowes up to October 1986 were perfectly in order?
§ Lord Young of Graffham
My Lords, I see little point in appointing an investigator to carry out an inquiry without actually being bound by the terms of its findings. I think it would be best if we were to wait until such time as the results of the inquiry are available. They will be published, so all Members of your Lordships' House will be able to form their own views.